The results of the auctions turned out to be contradictory and unexpected
At the first summer auctions, the Ministry of Finance of the Russian Federation maintained a limited supply of OFZ with a total volume of 30 billion rubles. At the auctions, a medium-term issue of OFZ-PD 26223 and one of the longest issues of OFZ-PD 26224 in the amount of 15 billion rubles were offered for placement. nominal value each. The maturity date of OFZ-PD issue 26223 is set on February 28, 2024, and coupon rates for the entire life of the loan are set at 6.50% per annum. The maturity date of OFZ-PD issue 26224 is May 23, 2029. Coupon rates for the entire loan circulation period are set at 6.90% per annum.
On first auction for the placement of OFZ-PD 26223, demand amounted to about 31,114.85 million rubles, exceeding the supply volume by 2.1 times. Having satisfied 65 bids during the auction, the issuer placed the issue almost in full(without two bonds) with a “discount” to the secondary market of 0.22 percentage points. at the cut-off price and about 0.18 p.p. at a weighted average price. The cut-off price at the auction was set at 97.4015% of the face value, and the weighted average price was at the level of 97.4501% of the face value, which corresponds to a yield to maturity of 7.18% and 7.17% per annum, respectively. Secondary trading the day before closed at a price of 97.500% of the nominal value, and the weighted average price was at the level of 97.626% of the nominal value, which corresponded to a yield of 7.16% and 7.13% per annum, respectively. Thus, the auction “premium” in terms of yield to the secondary market was about 2-4 bp.
Demand at the second auction for the placement of OFZ-PD 26224 amounted to about 13,867.98 million rubles. or about 92% of the supply volume. Having satisfied 67 applications during the auction, the Ministry of Finance of the Russian Federation placed bonds in the amount of 11,587.902 million rubles. at nominal value or about 77% of the proposed volume. At the same time, the issuer had to provide a “discount” on the weighted average price of about 0.40 percentage points. and the maximum is about 0.50 p.p. The cut-off price was set at 96.740%, the weighted average price was at 96.8855% of the face value, which corresponds to an effective yield to maturity of 7.47% and 7.45% per annum, respectively. Secondary trading the day before closed at a price of 97.141% of the nominal value, and the weighted average price was at the level of 97.289% of the nominal value, which corresponded to a yield of 7.42% and 7.40% per annum, respectively. Thus, the auction “premium” in terms of yield to the secondary market was about 5-7 bp.
Against the backdrop of interest in long-term bonds shown by investors last week, the Ministry of Finance decided to offer six- and eleven-year issues for placement at current auctions, although, as before, in a fairly limited volume of 15 billion rubles. every. However, the results of the auctions turned out to be contradictory and unexpected. At the auction for the placement of the six-year OFZ-PD 26223 issue, demand more than doubled the supply, and the issuer managed to place the issue almost in full with a minimum yield premium of 2-4 bp. to the secondary market. At the auction for the placement of the eleven-year issue of OFZ-PD 26224, with demand amounting to about 92% of the supply volume, only about 77% of the offered volume was placed, despite the fact that the cut-off price was set at 0.5 percentage points. below the secondary market level. It may be recalled that three weeks ago, when placing the same issue, demand was only 58% of the supply volume, and the realized volume was only 43%, with a cut-off price of 0.6 percentage points. below the market.
It should be noted that the situation in the secondary market can be characterized as a “fragile equilibrium”: over the past month and a half, predominantly sideways price movements have continued against the backdrop of relatively low activity (at the end of May, the volume of exchange trading was 30% lower than the monthly average for the first four months this year) and high volatility for even one or two days. Some support for the ruble debt market can be provided by inflation data, which in May, as well as in April, amounted to 2.4% year-on-year. Such a low level maintains hopes for a decline key rate to the neutral level, which, according to the head of the Bank of Russia, is still in the range of 6-7%, but closer to the upper limit of the range. It is obvious that current trends will continue until the end of next week, when the next meeting of the Bank of Russia will take place, at which issues of monetary policy will be discussed. Most market participants do not expect a change in the key rate, and the main intrigue will lie in possible changes and the rhetoric of the regulator’s statement.
Federal loan bonds with a face value indexed depending on the level of inflation (OFZ-IN). The nominal value of bonds is indexed monthly for the coming month in accordance with the consumer price index for goods and services. Russian Federation.
General characteristics of OFZ-IN:
- Issuer: Ministry of Finance of the Russian Federation
- General agent for placement, repurchase and exchange of OFZ-IN: Bank of Russia
- Organizers of OFZ-IN placement: CJSC "VTB-Capital", CJSC "Sberbank CIB", Bank GPB (JSC).
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Secondary market:
OFZs with an indexed denomination are allowed in the following trading modes:
- Main trading mode T+ ("glass T+1"),
- RPS with the Central Committee
- Negotiated deal mode
- REPO with Bank of Russia
- Interdealer repo
- REPO with CCP.
Available trading modes and settlement codes:
Trading mode Calculation code When concluding a deal
denomination and NKD values
defined:Main trading mode T+ Y1 Denomination and NKD - as of date
execution of the transactionRPS with the Central Committee Y0-Y2
(Y3-Y7 are not used!)RPS T0, Z0, B0-B30
NKD - on the date of execution of the transactionREPO with the Bank of Russia,
Interdealer repoZ0, Rb, S0-S02 Denomination - as of the date of the transaction,
NKD - on the date of execution of the 1st part of the transactionREPO with CCP 1st part of the repo transaction - T0, Y0, Y1 Denomination and NKD - as of date
execution of the 1st part of the transactionThe Exchange commission is charged on the date of the transaction.
With OFZ-IN it is allowed to conclude transactions with execution in the following coupon periods (“jumping over the coupon”).
If PJSC Moscow Exchange does not have par values and/or cash accrual values as of the current date, all settlement codes for such a security will be prohibited. In the absence of a market price and a MIRP price, the latest settlement price is used for trading in repo modes with the Bank of Russia.
If clearing participants fail to execute transactions with new bonds in regimes with the CCP, a standard procedure for “transferring obligations” is carried out by concluding RPS transactions with the CCP or REPO transactions with the CCP:- In this case, the values of the par value and cash income as of the settlement date known to PJSC Moscow Exchange as of the date of the transaction will be used.
- If there are no values of par value and/or accrual on the date of calculation, for the purpose of “transfer of obligations” the latter is used known value denomination and the value of the NKD calculated on its basis.
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The amount of coupon income will be calculated separately for each payment period based on the par value established on the date of payment of the corresponding coupon income.
Interest on the 1st coupon is accrued from the calendar day following the start date of OFZ-IN placement until the end date of the 1st coupon period.
Interest on other coupons is accrued from the calendar day following the end date of the previous coupon period until the end date of the current coupon period (maturity date).
The NKD is calculated based on the nominal value known by PJSC Moscow Exchange, established on the date of execution of the transaction. Rounding of the tax accrual for these securities is determined according to the issue documents with an accuracy of 1 kopeck (rounding is carried out according to the rules of mathematical rounding. In this case, the rule of mathematical rounding should be understood as a rounding method in which the value of a whole kopeck (whole kopecks) does not change if the first digit after the rounded digit equals from 0 to 4, and changes, increasing by one, if the first digit after the rounded digit is 5-9). -
Disclosure of information on the website of the Ministry of Finance
According to the Terms of Issue and Circulation of OFZ-IN, the Ministry of Finance discloses on the website information about the nominal value of OFZ and the index of reduction of the nominal value of OFZ for each calendar date of the billing month no later than 2 business days before its start.
The amount of coupon income is disclosed by the Ministry of Finance simultaneously with information on the nominal value of OFZ-IN for the corresponding month in which the coupon income will be paid.Providing information to NSD
On the date of acceptance for servicing of the Bond issue of NCO CJSC NSD in the section Notices on securities and events on the organization will publish:- information message on acceptance of the Bond issue for servicing;
- message (CHAN) - “Significant changes in the security” which will reflect the Table of values of the nominal value of the Bonds for the coming month.
In the future, the CHAN message will be sent to NSD participants with balances as of the date the message was sent and published on the website of the NCO CJSC NSD on a monthly basis after the information is disclosed on the official website of the Ministry of Finance of Russia.
The value of the daily changing nominal value of the issue will be reflected in the NSD depository accounting system and on the NSD website in the Serviced Securities section and in the NSD DISC in the field “Remaining nominal value to maturity (in par currency).”
In the information services of NPO CJSC NSD, provided under an agreement for the provision of information services, the value of the daily changing nominal value of the issue will also be reflected in the field “Remaining nominal value to maturity (in nominal currency)” (maturity_value, MtrtyVal).
In the NSD file - SIR-NSD (for example, SIR-NSD_Standart_A_v1_0_2015_07_09_01_04_24.zip) for OFZ - IN, the value of the daily changing nominal value of the issue will be reflected in the field "Residual nominal value to maturity (in nominal currency)" (maturity_value). The face_value field will display the initial value of the bond face value.
In the Exchange file - MOEX securities_micex_state_bonds.zip for OFZ - IN, nothing changes. The "FACEVALUE" field will display the daily changing value of the issue's nominal value. In the ACCINT field - the value of the coupon.
Broadcasting information in the exchange gateway and terminalMICEXTradeS.E.
Information on the indexed denomination is transmitted to the gateway and is available in the MICEX Trade SE trading terminal in the “Tools” table, where you need to select OFZ-IN and click on the right mouse button. In the menu that opens, select the item “Denomination and ANK”, which will open a separate window with data on the indexed denomination and AKD.
An example of such a window with data can now be seen on the test bench for the OFZ 46023 instrument. The “Start date” column contains the date the Ministry of Finance disclosed information about the indexed denomination for the billing month.
Attention! The example with the OFZ 46023 tool serves only to create general idea about the composition and structure of the information presented in the “Denomination and NKD” window. The example uses only test data that has nothing to do with real data. The values used as test data may not have any logic or pattern.Legal entities 20% 15% 15% Individuals 13% 0% 0% NPF (1) 20% 15% 15% Non-residents Doesn't hold (1) the tax is levied at a level of profitability exceeding the refinancing rate of the Bank of Russia
The Russian currency ended the Tuesday session with growth towards the levels ₽66.2500/USD And ₽76.1500/euro. The daily strengthening of the ruble amounted to 30.7 kopecks. and 33.0 kop. respectively. One of the reasons for the strengthening of the position of the Russian currency is the rise in price of oil by more than a dollar. The result of yesterday's world session was $85.00 (+1.09 dollars). This morning, commodity quotes adjusted down ($84.86 at 08:32 Moscow time).
Along with “black gold”, the ruble was supported by a change in sentiment among American speculators regarding Russian assets: according to the Futures Trading Commission, “long” positions on the strengthening of the ruble on the Chicago CME exchange increased by 51% over the week, and “short” bets on weakening of the domestic currency - decreased by a similar amount.
It will be possible to verify the CFTC’s conclusions today by tracking the dynamics of demand for federal loan bonds put up for auction by the domestic Ministry of Finance.
— The Ministry of Finance finally decided to hold an auction for . A single issue with a volume of ₽5 billion at par value is being prepared for placement. The department has not “swimmed” so small for a long time - the last auction was a failure due to lack of demand, but the ministry decided to try its luck again, comment Alpari analysts.
Company representative Anna Bodrova recalled that it was the failure of the auction a week ago that caused the fall of the ruble.
“New stress for the Russian currency is very likely if something doesn’t go according to plan,” she warned.
Bodrova’s forecast for RUR/USD for the first half of Wednesday is ₽66.50-67.10.
Other representatives of Alpari, meanwhile, are signaling a deterioration in the external background for the ruble.
— On October 9, the external background worsened - risky and commodity currencies (in particular, the Canadian dollar) came under pressure. At the same time, against the general background, the Russian currency looked relatively confident,” explained Roman Tkachuk, a representative of the investment community.
The further direction of the ruble's movement, according to him, will be determined by the demand for OFZ.
— If the external background does not improve on October 10, Western currencies may try to rise. The range of ₽75.90-77.00 remains relevant for the euro, and ₽66.00-67.20 for the dollar (there is strong resistance at the upper level, which will be extremely difficult to take at a glance). Today, investor sentiment will be determined by the results of the Ministry of Finance's placement of 3-year OFZ issues. The financial department failed to publish this issue a week ago,” the Alpari expert recalled.
Currency strategists at the Finist group share the concerns expressed by Tkachev.
— Technical picture indicates a high probability of continued fall of the ruble in the medium term. In the event of a breakdown of the resistance located at ₽67.20, the dollar will have the potential to move to the level of ₽72.00. If the external negativity continues, the indicated level can be seen at the end of this week, the company explained.
The sale of government debt securities to investors may be subject to various purposes. The funds raised cover the budget deficit and finance government investment programs and projects.
In Russia, public debt management is carried out by the Government, which sets the maximum volume of public debt for the next fiscal year, approves the general conditions for the issue and circulation of government debt securities, and also makes other key decisions on this issue. But the Ministry of Finance directly issues and services government bond issues on its own behalf, engaging the Bank of Russia as a general agent.
The volumes of planned borrowings are regularly published on the official website of the Ministry of Finance and are available for review by everyone. The initial placement of OFZs itself takes place through auctions, which are scheduled to be held on a weekly basis every Wednesday.
The department also publishes the exact schedule for the next quarter. Online, however, in some cases, when market conditions do not allow raising funds at the required rate, the auction may be canceled, as reported in the corresponding press release.
The auction form makes it possible to assess the real market conditions and understand at what rate of return investors are willing to lend to the state. High level demand allows the state to count on a lower interest rate on loans for the next placement, while low demand, on the contrary, indicates the need for the investor to give a higher return or wait for a more suitable market situation.
Who participates in auctions of the Ministry of Finance
Buyers of debt securities on the primary market are mainly large institutional and private investors who, due to the size of their capital, cannot buy securities on the secondary market without loss of profitability. Investors can also expect that due to low demand, the auction will generate more profitable terms than on the secondary market.
In theory, anyone can take part in the auction. However, in practice, brokers and banks that provide clients with access to Ministry of Finance auctions may impose certain restrictions on minimum size capital or provide such a service only separate category clients.
For an ordinary private investor whose investment volume does not exceed 20-30 million rubles, the liquidity in most OFZ issues is quite enough to purchase securities on the secondary market. If you operate with larger amounts or expect greater profitability, you can contact your broker to participate in the auction.
How the auction works
The auction is held through a special trading system based on the Moscow Exchange infrastructure. There, a press release is published on the exchange website the day before the auction, which indicates the issues of securities offered at the auction, the time for submitting applications and other features. As a rule, the Ministry of Finance offers two or three OFZ issues at auctions with different maturities.
Auction participants can submit two types of bids: competitive and non-competitive. Competitive bids are executed exclusively at the price specified in the bid and may not be fully or partially satisfied by the issuer. Non-competitive bids are satisfied at the weighted average auction price if there is a supply.
Why do analysts monitor Ministry of Finance auctions?
Based on the results of the auction, the exchange publishes the results. Based on the weighted average yield formed at the auction, market participants estimate the fair yield on securities and general sentiment in the market.
A significant excess of demand over the placement volume or a discount in the auction yield compared to the price on the secondary market - these factors indicate high demand and a possible decrease in the yield on securities in the future. It also matters whether securities with a maturity date are in higher demand.
On the contrary, if the issue was not placed in full, was placed with a premium on yield, or the auction was canceled altogether, then this is a clear signal to the market that the demand for the securities is low, and the fair yield on the market may be higher than that offered by the government.
Galaktionov Igor
BCS Broker
BC REGION: The results of the last auction were a continuation of the trends in the primary market that have been observed since the beginning of this month. If there is sufficient demand, the Ministry of Finance, cutting off most of the aggressive orders, significantly limits the volume of placement. Last week, out of the proposed OFZ in the amount of 25 billion rubles. about 52% were sold. The previous auction for the placement of the OFZ-PD 25083 issue in the amount of 20 billion rubles. took place two weeks ago, with demand exceeding supply by 82%, the issuer sold only 65% of supply, cutting off most of the aggressive orders and offering investors a minimum “premium” on yield of about 2 bp. At today's auction, demand more than doubled the supply volume, and the sales volume was only about 58.5% with a higher “premium” in terms of yield to the secondary market at about 7 bp. At the end of two weeks in August, the auction yield of OFZ-PD 25083 increased by 60 bp, which corresponds to the average growth rate of yield on the OFZ market as a whole.
The main factors of low demand and negative pressure on the OFZ market (and ruble bonds in general) remain fears of new sanctions from the United States, the main provisions of the bill about which were published this week; instability of the ruble, which is under pressure along with other currencies of developing countries; rising inflation expectations against the backdrop of tax maneuvers and growing geopolitical risks, which, together with other factors, may lead to a tightening of the monetary policy of the Bank of Russia.
ROSBANK: The Ministry of Finance managed to place only 5.8 billion rubles. out of the declared 10 billion rubles. 4-year issue 25083. However, this time the Ministry decided to limit itself to a 4 bp premium on yield over Tuesday’s close, thereby preferring price conditions over the volume of borrowings. We believe that the agency will continue to be flexible in its approach to the semi-closed primary market. It is impossible, however, not to notice the fact that the USD/RUB exchange rate being at 67.0 (the average since the beginning of the year is 60.3 versus 58.6 included in the revised federal budget) automatically reduces the need to attract new debt within the framework of the budget rule.
Promsvyazbank: The Ministry of Finance planned to place OFZ 25083 at an auction on Wednesday with maturity in December 2021 for 10 billion rubles. The yield on this issue at the close of trading on Tuesday was 8.11%. In a deteriorating market environment, investors demanded a premium, but the Ministry of Finance refused to borrow at high rates. The department sold OFZ 25083 for only 5.85 billion rubles. on a weighted average yield of 8.15% (premium 4 bp). At the close of trading on Wednesday, the yield on OFZ 25083 had already risen to 8.25%. The budget surplus and liquidity reserve of the Ministry of Finance allows a flexible approach to the implementation of the borrowing plan, reducing supply in weak conditions. At the same time, while the annual plan remains in force, the reduction in supply at current auctions only increases pressure on the market in the future.
IC Veles Capital: The only primary auction of the Ministry of Finance that took place on Wednesday can be characterized ambiguously. The department performed with minimal long time proposal – 10 billion rubles. short “classic” issue 25083. Despite good demand (the amount of applications was more than 2 times higher than the offered volume), only 58% of the lot was placed at a weighted average rate of 8.15%. The yield of the issue at the opening moment today was 8.11%. Apparently, the Ministry of Finance is still not ready to borrow at an increased cost. However, closer to closing, the yield of OFZ 25083 on the secondary market dropped even lower and reached YTM 8.25% (+14 bps). Forecast. This morning, OFZs are again making an attempt to recover, showing restrained upward dynamics against the background of the strengthening of the ruble.
URALSIB Capital: Demand for OFZ 25083 maturing in December 2021 was twice as high as supply and amounted to RUB 20.1 billion. However, the Ministry of Finance sold securities for only 5.8 billion rubles. out of 10 billion rubles. The agency refused to provide a large premium to the secondary market: the yield at the cut-off price was 8.16% per annum, while before the auction the issue was trading at approximately 8.14–8.15% per annum. On the one hand, the reluctance to borrow at any cost is a positive signal for the market; the more favorable the budget situation allows for a reduction in borrowing. On the other hand, investors could negatively interpret the low volume of placement of an issue with medium-term duration, which is traditionally in good demand.
Raiffeisenbank: Yesterday at the auction the Ministry of Finance managed to sell OFZ 25083 for only 5.8 billion rubles. of the proposed 10 billion rubles, while such a low placement volume is due to the department’s reluctance to provide a premium (the yield at the YTM cut-off price of 8.16% was close to the secondary market quotes on the morning of the auction day). After the auction on the market, the yield on the issue rose to YTM 8.20% against the backdrop of a renewed price decline along the entire government debt curve following the weakening of the ruble (from 66.7 rubles to 67.4 rubles per dollar). Today, long issues have surpassed the YTM 8.5% mark; apparently, non-residents continue to exit Russian government debt, while local investors at current levels are not ready to buy large volumes (as evidenced by the auction result). It is worth noting that the Ministry of Finance can afford to carry out such placement tactics (not place securities if there is no demand at market prices). According to our estimates, this year, due to the high ruble price of oil, the federal budget surplus will make it possible to cover the volume of rubles coming to the market from the budget as a result of foreign exchange interventions, without exceeding the NWF spending plan, i.e. There is no urgent need for borrowing.
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